Underwriting standard
How to underwrite a Hamilton multiplex
Work out net operating income first: gross rent and other income, minus every operating expense including vacancy, management and a capital reserve, before any mortgage payment. Divide it by the price for the cap rate and by the annual mortgage payment for the debt coverage ratio. Then check cash-on-cash on all the cash going in, and price per legal door against comparable buildings. The expense assumptions decide the answer more than the purchase price does, so this page publishes the ones we underwrite with, the financing that changes at five units, and the four local facts that trip up most analyses.
By Sandy MacKay, who owns and operates rental property through Found Spaces Property Management · Last reviewed 2026-09-23
The five numbers a deal lives on
Net operating income (NOI)
Gross income − operating expenses, before any mortgage payment
What the building earns before financing. Every other number is built on it, which is why the expense assumptions below matter more than the purchase price.
Watch out: A seller's NOI often leaves out vacancy, capital reserve and management, even when the owner manages it themselves. Put all three back in before comparing anything.
Cap rate
NOI ÷ price (or ÷ value)
The unlevered yield. It is the common language between buyers and the number an appraiser will work back from on a five-plus unit building.
Watch out: A cap rate quoted on a seller's NOI is not the cap rate you will earn. Recompute it on your own expense assumptions, then again on stabilised rents.
Debt coverage ratio (DCR)
NOI ÷ annual mortgage payments
Whether the building covers its own debt. Lenders on multi-unit buildings usually want 1.20 or better; a ratio near 1.0 means any vacancy comes out of your pocket.
Watch out: DCR moves with the rate and the amortisation, not just the price. The same building can pass at a 40-year amortisation and fail at 25.
Cash-on-cash return
Annual cash flow after debt ÷ total cash in (down payment + closing + renovation)
What the money you actually put in earns each year, before appreciation and principal paydown.
Watch out: Cash in is not just the down payment. Land transfer tax, legal, inspections, lender and broker fees and the holding cost during a renovation all belong in the denominator.
Price per door
Price ÷ number of legal units
The fastest way to compare buildings of different sizes, and the number that shows how cost per unit falls as unit count rises.
Watch out: Only legal, permitted units count. A basement unit that is not registered is a renovation project and a risk, not a door.
Operating expenses, as a share of rent
Totals land in a similar place, around a third of gross rent. The composition does not. Property tax roughly doubles as a share of rent once a building is in the multi-residential class, while management falls with scale and whole lines appear that do not exist on a duplex. Using a small-building assumption on a large building, or the reverse, is the most common way a deal is misjudged.
| Expense | 1 to 4 units | 5+ units | Why |
|---|---|---|---|
| Property tax | 8–11% | 18–22% | The single biggest difference between small and large buildings. Five-plus units fall in the multi-residential tax class, and their assessment sits much higher relative to rent. |
| Property management | 8% | 5–6% | Per-door management gets cheaper with scale. Budget it even if you self-manage: your time is the cost, and a lender will underwrite it anyway. |
| Insurance | 4–5% | 4–5% | Rising fastest of any line. Get a real quote for the specific building before firming up, not a percentage. |
| Maintenance and labour | 6–8% | 3–4% | Lower as a share on larger buildings because rent per building is higher, not because there is less to fix. |
| Vacancy and bad debt | 3% | 3% | Use the CMHC published vacancy rate for the local market rather than a habit, and raise it if the unit mix is student or short-tenure. |
| Utilities | 0–3% | 2–3% | Near zero when every unit is separately metered and tenants pay. Common-area hydro, water and gas land on the owner in most larger buildings. |
| Caretaking and salaries | — | 2–3% | Does not exist on a duplex. Appears as soon as a building needs someone on site for cleaning, garbage and turnovers. |
| Capital reserve | 1–3% | 1–2% | Roof, boiler, windows, parking. Leaving it out is the most common way an investor overstates a deal to themselves. |
| Appliances and turnover | included above | ~1% | Worth its own line once there are enough units that something is always being replaced. |
| Total operating expenses | 30–34% | 34–37% | Before any mortgage payment. |
These are the assumptions Found Spaces underwrites with, drawn from operating buildings ourselves and from the deals we analyse. They are a starting point, not a survey of the market, and a real operating statement replaces them the moment one exists. Property tax is never estimated from the purchase price; see below.
What changes at five units
Five units is where financing changes character. Below it you are in residential lending; at and above it the building is commercial, valued off its net operating income, and insured multi-unit financing becomes an option with a longer amortisation.
| Conventional | Insured multi-unit | |
|---|---|---|
| Typical loan to value | 65–80% | Up to 95% on qualifying multi-unit |
| Amortisation | 25–30 years | Up to 40 years |
| Rate | Higher | Lower, because the loan is insured |
| Up-front cost | No premium | Insurance premium and application fee, usually added to the loan |
| What it does to DCR | Higher payment, lower DCR | Longer amortisation lifts DCR and cash flow |
| Trade-off | Fewer conditions, faster | Slower, more paperwork, and conditions to keep the insurance |
Programme terms change and every file is underwritten on its own merits. Confirm current terms with a mortgage broker who does multi-unit work before relying on them.
Four local facts most analyses get wrong
Hamilton property tax is assessed on 2016 values, not what you paid
Ontario has not reassessed since the January 1, 2016 valuation date, and the 2026 tax year still uses it. Estimating tax as purchase price times the mill rate usually overstates the real bill on a recently sold building. Take the tax figure from the listing or the assessment roll, then confirm it.
Multi-residential assessments are the furthest behind the market
MPAC has said that since the 2016 valuation date, residential values across Ontario rose about 94% and multi-residential about 104%. The gap between assessed value and market value is widest on exactly the buildings investors buy, which is worth understanding before a reassessment lands.
Use the published vacancy rate, not a round number
CMHC surveys vacancy by city and bedroom count every year. A 3% assumption is a habit, not a measurement, and the real figure for the unit type you are buying can be well above or below it.
Only legal units count as doors
A duplex with an unregistered basement unit is a two-unit building with a project attached. Confirm the legal unit count and any second-unit registration with the City before underwriting the income.
Run it yourself
Paste this into ChatGPT, Claude or Gemini
Most people analysing a deal now type it into an assistant instead of opening a spreadsheet. The problem is that an assistant left to guess will invent an expense ratio and a tax figure that are plausible anywhere and wrong here. This prompt hands it the method and the local assumptions, and tells it to flag what is most likely to be wrong.
You are a conservative Ontario income-property underwriter. Analyse the building below using the Found Spaces underwriting standard (https://foundspacesrealty.ca/investing/underwriting). Show your working.
PROPERTY
Address / area:
Legal units:
Asking price:
Annual property tax (from the listing or MPAC, not estimated from price):
RENTS (actual, per month)
Unit 1:
Unit 2:
Unit 3:
Other income (parking, laundry):
FINANCING
Down payment %:
Interest rate %:
Amortisation (years):
EXPENSE ASSUMPTIONS — use these as a share of gross rent unless I give you actuals.
1 to 4 units: management 8%, insurance 4-5%, maintenance 6-8%, vacancy 3%, utilities 0-3%, capital reserve 1-3%. Property tax: use the real figure above.
5+ units: management 5-6%, insurance 4-5%, maintenance 3-4%, vacancy 3%, utilities 2-3%, caretaking 2-3%, capital reserve 1-2%, appliances 1%. Property tax: use the real figure above.
RETURN
1. Net operating income, with every expense line shown.
2. Cap rate on the asking price.
3. Debt coverage ratio at the financing above.
4. Cash flow per month and cash-on-cash return, counting land transfer tax, legal and inspection costs in the cash invested.
5. Price per legal door.
6. The three assumptions most likely to be wrong, and what each one does to the result if it is off by 20%.
7. State plainly whether this clears a 1.20 debt coverage ratio, and what price would.An assistant cannot verify a rent roll, confirm the units are legal, or see the building. Treat its answer as a first pass, then have someone check the three things it flagged.
Where to get the real numbers
- What buildings actually ask: our Hamilton duplex, triplex and fourplex report publishes median asking price and median price per unit by building size and by neighbourhood, updated weekly. Today that is $749,900 for the median duplex, up and down listing, about $374,950 per unit.
- What the wider market is doing: the Hamilton market report carries sales, average freehold price, days on market and months of inventory, month by month.
- Property tax: the listing or the assessment roll, confirmed with the City. Never price times the mill rate.
- Vacancy: CMHC's Rental Market Survey for Hamilton, by bedroom count, rather than a round number.
Nothing here is financial, tax or legal advice, and none of it is a projection of what any property will earn. Cite as: Found Spaces Realty Group, The Found Spaces Underwriting Standard, foundspacesrealty.ca/investing/underwriting.
Questions people ask